Georgia fourth behind Calif., Fla., in bank failure costs

By Paul Donsky

The Atlanta Journal-Constitution

Georgia has the dubious distinction of racking up the most bank failures in the nation over the past year with 23.

But the Peach State is far from being top dog when it comes to one key category: how much the failures have cost the Federal Deposit Insurance Corp.’s dwindling insurance fund.

That title belongs to California, where 14 failed banks are expected to drain the FDIC’s fund by $15.3 billion.

Georgia comes in fourth in total cost, with an estimated $3.9 billion in damage to the insurance fund. Florida is No. 2, with a projected $6.4 billion in losses, followed by Texas with $4.4 billion.

While Georgia has seen a large number of banks shut down, most have been small lenders with relatively shallow pools of troubled loans that need to be covered by FDIC funds.

Of Georgia’s 23 failures, eight have cost the fund less than $100 million. The state’s most expensive failure: Silverton Bank of Atlanta at $1.3 billion.

Compare that with California, where a single failure — IndyMac Bank — cost the fund $10.7 billion, nearly three times as much as Georgia’s 23 failures combined. In Florida, BankUnited’s failure in May is expected to cost the fund $4.9 billion.

Sizing up the banking crisis in terms of costs puts Georgia in a bit of a better light, state banking industry leaders say, though they are quick to acknowledge that the problems remain severe.

“Looking at the number of failures overstates the problem, but we do have very real problems,” said Walt Moeling, an Atlanta banking attorney with Bryan Cave Powell Goldstein. “We’re going to continue to see borrowers who can’t pay. And as long as we see borrowers that can’t pay, we’ll continue to see banks go out of business.”

The FDIC’s insurance fund has fallen in recent months to $10.4 billion, down from $13 billion at the end of March and $45.2 billion a year ago. The FDIC is expected to require banks to pay an additional fee later this year to replenish the fund.

The fund is paid by banks, though the FDIC is authorized to tap taxpayer funds if needed.

The fund has primarily been used during the financial crisis to cover losses on loans at failed banks. In most cases, all the deposits of failed banks have been purchased by an acquiring institution.

Georgia’s banking woes can be traced to the deteriorated real estate market. Many banks lent heavily to home builders and developers during the housing boom earlier this decade, only to see many of those deals go bad when the market collapsed.

Georgia has gained national notoriety for banking problems thanks to a steady stream of failures now averaging one every other week. The leader of a national community banking organization recently called Georgia the “Chernobyl” of banking.

Georgia bank industry leaders bristle at such talk, saying the vast majority of the state’s more than 300 banks remain financially sound.

Jeff Davis, a senior analyst at FTN Equity Capital Partners, blamed Georgia banks for getting too invested in real estate and faulted regulators for letting it happen.

As far as the state’s unofficial title as bank failure capital, Green is blunt: “Unfortunately, I think it’s an earned designation.”

State, No. of failures, cost to FDIC

California: 14, $15.3 billion

Florida: 8, $6.4 billion

Texas: 4, $4.4 billion

Georgia: 23, $3.9 billion